Investigating Investment Practices in Ethiopia: Success Stories and Challenges Ahead

Abstract

Ethiopia has pursued its own investment policies aimed at transforming its economic structure. After the incumbent regime assumed to power, it has tried to boost private investment. The general objective of this study is to investigate the distribution and challenges of investment, and explore practices aligning with in the context of development theories in Ethiopia. To this end, secondary data was collected from government offices, unpublished documents, books and reviewed journals to underpin the theories with the existing investment realities of Ethiopia.  The distribution of investment portray that most of the investment is concentrated in Addis Ababa, unfairly making it “Metropolis” and other regional states of Ethiopia as “Satellites” that can be accounted for the existence of large market potential and location advantage. The various incentive packages introduced by government are not effective to attract investment to periphery areas. It is possible to underpin various development theories with the practice of Investment in Ethiopia. The surplus labour theory is partially applicable in the context of Ethiopia where most of the family members are disguisedly unemployed. This is aggravated by the high population density and seasonal nature of agriculture.  This paper tried to investigate if there is infant industry argument implementation in Ethiopia and it is difficult to generalize thereof.  The policy lacks to specify until when is the support, no measure to know whether they pass that stage for lifting the protection and is difficult to state its presence. The theory of Developmental state, the neoclassical counterrevolution market-friendly approach and Keynesian Growth theory recognizes that there are many imperfections in developing countries and governments do have a key role to play in facilitating the operation of markets. This is very aligned with what the current government is practicing. The development orientation of Ethiopia is Agricultural development will lead to industrialization. This implies that gradually there will be a structural change of the economy from agriculturalist to industrial, very aligned with structuralism development theory.  It is found that the basic challenges of investment are presence of nominal investors, bad governance, low saving; investors rush to service sector and corruption. Therefore, it is recommended to boost the private sector by going beyond incentive such as infrastructures, finance, good governance, investigating regional states potential investment specializations and creating interregional trade.

Keywords: Investment, Challenges, Ethiopia, Development Theories